If progressives want a Clean Energy Bank, they need better economics 5

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1. 

   Sean Casten Posted 10:54 am
   21 Aug 2009

   Note that the Clean Energy Bank is essentially round 3 of the clean energy loan guarantee program, created first under Bush in the 2005 energy bill, renewed in the 2007 bill and only now starting to make distributions.  Note further that the clean energy loan guarantee program itself is simply a modification to the decades-old loan guarantee program that - prior to 2005 - was available only for nuclear facilities.In other words, if one is opposed to loan guarantees for clean energy, one is also opposed to loan guarantees for nuclear.  I'm willing to guess that the WSJ and their ilk have probably not been intellectually consistent on that point...One final point: those loans, unlike most federal programs actually get paid back, with interest at a rate that is calcualted as the treasury rate plus a risk premium.  Which means that to the extent this is a violation of market principles, it is only one in the narrow sense that one can make the case that the resulting interest rate is lower than what would be otherwise available; it's not an argument that the feds are throwing money at boondoggles.  (We are in the midst of an application under the 2005 program right now, and I can assure you that it is as rigorous as any bank lending program; a government grant, this ain't.)As it applied to the nuclear program, my understanding is that the program was created and maintained on the proposition that the inherent risks associated with nuclear plant construction would compel banks to loan money at rates that would not allow for project construction, and that there was therefore a public benefit in providing a federal backstop to those risks, lowering the rate so that we could all benefit from more nuclear power.  Whether one agrees or disagrees that nuclear was worthy of such support, those are the only grounds on which to argue that this is not suitable for other clean energy: e.g., one has to make the case not only that the current interest rates provided for loans to clean energy projects reflect perfect markets, but also that the societal benefits from more clean energy, such as would be provided by a federally-underwritten lower interest rates offset the costs.  In all cases, one cannot simply make the case from a narrow libertarian markets-are-perfect worldview.

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   1. 

      GRLCowan Posted 3:36 pm
      22 Aug 2009

      a modification to the decades-old loan guarantee program that - prior to 2005 - was available only for nuclear facilities.... As it
      applied to the nuclear program, my understanding is that the program
      was created and maintained on the proposition that the inherent risks
      associated with nuclear plant construction would compel banks to loan
      money at rates that would not allow for project construction, and that
      there was therefore a public benefit in providing a federal backstop to
      those risks, lowering the rate so that we could all benefit from more
      nuclear power.Loan guarantees for nuclear construction are a new thing. Had they been in effect when government was red-taping many projects to death in the 70s and 80s, it would not have done so. Do you have some evidence that a "decades-old loan guarantee program ... for nuclear facilities" ever existed? (How fire can be domesticated)

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   Jesse Jenkins Posted 12:21 pm
   21 Aug 2009

   "Liberals really need to start thinking about trying to mainstream some alternative economic approaches (e.g., ecological economics, or even behavioral economics). Otherwise they’re constantly going to be in the position of advocating for policies that get them tut-tutted by economists and Blue Dogs alike."Indeed progressive do need to mainstream some alternative economic approaches.  That also cuts against our repeated dogma surrounding cap and trade and carbon taxes.  The concept that the market will efficiently and ideally solve our climate, innovation and economic challenges is what has motivated so much of the cap and trade push.  It's market fundamentalism meets pollution regulation.  And it's not sufficient to spur a clean energy revolution (as you've written before David).I've found the works of Rob Atkinson and the Information Technology and innovation Foundation quite instructive and helpful as an "alternative economic approach" well deserving of mainstream (or at least progressive) attention.  See www.innovationeconomics.org  www.itif.org and the Wikipedia entry here.  Head here to take a quiz and see what type of economic philosophy you hold.

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   1. 

      Sean Casten Posted 12:34 pm
      21 Aug 2009

      Interesting test, Jesse.  Apparently, I am a Rubinomicist.

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3. 

   Jesse Jenkins Posted 12:50 pm
   21 Aug 2009

   Yeah, pretty interesting, eh? No surprise, I come out as a "Strong Innovation Economics" person. As you can see when you complete the test, the vast majority of respondents come out as Neo-liberal Rubinomics types or as Supply Sider Reaganite types. Hence David's point about the need for some new economic ideas! Sean, you should check out some of Atkinson's writings. Cheers,
   Jesse

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